Open Letter to Twitter CEO Dick Costolo – RE: Crowdfunding

Your recent interview in the New York Times and CFO Ali Rowghani appearing in Bloomberg have ramped up speculation that the company will be going public sometime soon.

With Twitter now seriously considering going public, you need to give thought to how you plan to do this. Taking the traditional way, working through a fleet of lawyers, brokers and investment banks has worked for a lot of companies, but it has also cost them a lot of money.

If Twitter takes the traditional route, it’s going to cost the company $150 million or more in discounts to the investment banks, lawyer fees and percentages paid to people who run the deal.

Mr. Costolo, that’s $150 million or more Twitter will never see.

Look at it this way. Your company is forecasting at least $1 billion in sales by 2014. $150 million is 15 percent of that expected revenue. Are you really willing to hand 15 percent of Twitter’s expected income over to a group of people who have done nothing to help your company?

Twitter holds a very special position in the world of mass communication. Twitter is powered by ordinary citizens across the world. Tweets by people are now major news. Twitter has already been cited as a significant source of information in countries where political strife has turned violent.

Mr. Costolo, Twitter is the everyman. It is the average person walking down the street with a smartphone. It is people who send a notice about the birth of a child and people who send a picture about government forces attacking rebels. It is politicians making missteps and touting their platform.

Mr. Costolo, Twitter is true mass media.

Since the masses are the people who make Twitter what it is, let the masses also share in the bounty that Twitter will produce. Let them share directly in the profits. Let them invest directly in the company that is now such an important part of their life.
By offering investment access in Twitter through a Crowdfunded DPO (Direct Public Offering), you have the opportunity to change capital finance to the same extent Twitter has changed the way the world communicates.

Take the Twitter IPO direct. Don’t lose $150 million to consultants, huge Wall Street banks and lawyers. Keep that money for the company. Don’t let these consultants and investment banks set the price for Twitter only to see the price plummet as Facebook’s stock price did.

Let the masses, the very people who have made Twitter into a global success, have direct participation. Let them buy stock direct, no middle man, no waiting until huge investment houses have made a profit (and kept Twitter from receiving that money).

Mr. Costolo, you owe the people who make Twitter what it is the chance to get in on the ground floor of the company. Let them invest direct with a crowdfunded IPO. Let them reap the profits and let Twitter gather as much from the IPO as it can.

WOW~ Bravo~ You made some great points here and I really hope Dick Costolo gave this a read. Twitter will not be the same once taken over by the major shareholders and I doubt that users will stick around after that. I’m not saying that the downfall would happen right away, but I think it’s an inevitable outcome. I hope Dick Costolo doesn’t abandon what’s made his company so successful, because it would be a loss for both the users and the company.

Well, most startup company CEO’s who have enough success to go public is looking for a huge payday with the IPO anyways. I don’t think Dick Costelo is any different and I don’t think the man will change his mind for anything. After all, who cares if the company loses $150 million when you could potentially be making that much and more personally?

If Mr. Costolo was a smart man then he would listen to you and by the success he’s had so far he must be a smart man. However, we all know greed clouds the judgment of even the best man and I think it’ll be hard for Mr. Costolo to look past all the investment money that he believes will flow into his business on Twitter goes public. I won’t have my hopes up, but I do hope that Mr. Costelo will choose the crowdfunded IPO route.

Well said. It is true that Twitter wouldn’t be nearly as successful had it not been for the average Joes who use the medium for something as meaningless as giving shout outs to something as serious as being used to send political messages. You lose the reason why it exists and you’ll lose everything. I hope you understand that CEO Costelo.

I’d rather not imagine how Twitter will transform once the company goes public.. it’s truly depressing and I hate the fact that the internet is slowly being swallowed up by mega corporations. It’s the last frontier where the little guys can still shine, but from the looks of things those days are numbered.

As much as I respect your view on this, I don’t know that anyone can blame Dick Costelo for going public with Twitter. Right or wrong it’s just the way business is done in this day and age. I don’t have faith in the stock market and I wish people would embrace the crowdfunded IPO a lot more, but established businesses will always choose the more traditional route. In any event I respect your view on this and I do conquer with most of your sentiment.

The people, average people like you and I are starting to realize that we don’t need to depend on the broken down trickle down system anymore. We can use the crowdfunding system and be part of the process of the entire wealth making operation. This probably scares the shit out of the ones in power now and we’re already seeing them trying to stall to eventually put a break on crowdfunding. But imagine what Twitter can do if it adopted the crowdfunding IPO model and it became the first major company to successfully go public with it. It’s a long shot, but I too am hoping Mr. Costelo would give this a serious consideration.

Business people nowadays don’t have that long-term vision anymore. Everything’s about making it big as fast as possible and getting out of the game before it starts to deflate. In the past businessman used to pride themselves for what they’ve built and they built their businesses so they would remain standing for many generations and not for the quarterly profits. Twitter will have to change their business model after they go public and I don’t believe they’ll ever be the same again. For the long-term, I believe the only way for Twitter to thrive is to go with the crowdfunded IPO model.

Greed and power has driven men for as long as its existence and that will not change for as long as civilization exists. Crowdfunding is a model that benefits everyone and not just few powerful men, but men in power want all the profits they can get their hands on and hence the reason Costolo will not even entertain the idea of of going IPO with crowdfunding. I love the idea and I love your enthusiasm, but I can never see this happening in reality.

It makes perfect sense for Twitter to go public with Crowdfunded DPO, but will Costelo bite? Twitter had a unique approach to business and platform from the beginning, so I think if anyone will jump into the Crowdfunded DPO model, it will be Twitter, so that does add some optimism. People need to share this more and let everyone in on it. Force Twitter to listen to their users and if we do that we might have a shot at convincing the Twitter brass to go with Crowdfunded DPO.

It’s my understanding that crowdfunding securities is not yet legal. The SEC is in the middle of a 270-day mandate to create and implement rules governing crowdfunding by sale of securities. This mandate terminates on December 31, 2012. As a result, it is unlikely crowdfunded securities offerings will be legal until 2013 or perhaps even longer if the SEC is slow in adopting the necessary rules. Given all the uncertainties, perhaps it is wise to go the more traditional IPO route?

Direct IPOs were conducted over the Internet as early as around 1995 right here in the USA with Wit Capital. They were very successful with their offerings but closed up shop in 2000 due to the Internet bubble bursting.

You can do a search on Wit Capital and you will find many results. Here is a couple:

Excerpts: First paragraph

1) Wikipedia
Merger with Wit Capital
At the peak of the dot-com bubble in early 2000, SoundView merged with Wit Capital (formerly Nasdaq:WITC) to form Wit SoundView in a $320 million all-stock transaction.[2] Wit Capital had been founded just a few years earlier, in 1996, by Andrew Klein. Wit positioned itself as an online investment banking firm focused exclusively on the Internet and technology sectors. Wit had pioneered several bubble-era innovations in investment banking including a “first-come, first-serve” approach to public offerings.[3] Wit had been backed by Goldman Sachs, which sold its stake in 2001.[4]http://en.wikipedia.org/wiki/SoundView_Technology_Group#Merger_with_Wit_Capital

2) Wit Capital: IPOs for Everyone

By Tom Taulli | May 16, 2000
Page 1 of 1

“While IPOs are still allocated mostly to institutions and wealthy individuals, this has been changing. More and more, individual investors are also participating in the new issues market. The pioneer in this industry has been Wit Capital . The company was started several years ago by an ex-Wall Street attorney, Andrew Klein, who wanted to raise money for his microbrewery. When every venture capitalist rejected his business plan, he went direct to the people. Literally. He launched his IPO via the Internet.”http://www.internetnews.com/bus-news/article.php/363041/Wit+Capital+IPOs+for+Everyone.htm

3) Wit Capital Corp. (http://www.witcapital.com)-the world’s first Web-based investment bank (see “New Issues, New Medium,” June ’97, RR)-opened for business in September, has participated in two IPOs, and is promising to soon originate some of its own deals.

For its first act, Wit allowed investors to open accounts with a minimum deposit of $1,000, download a red herring and put in orders to buy shares in IPO Radcom Ltd., an Israeli-based network test equipment manufacturer. The deal was underwritten by Unterberg Harris of New York City, with Wit as part of the syndicate. Wit’s investors got their shares on a “first-come, first-serve” basis, says Wit founder Andrew Klein, “in sharp contrast to any other retail broker.”http://wealthmanagement.com/archive/internet-based-wit-capital-does-first-deal

4) Wit Capital Masters Net Ipos
THE MONEY PEOPLE
BY AMY FELDMAN
Monday, February 15, 1999
Wit Capital founder Andy Klein pioneered the idea of bringing companies public over the Internet.
Now there’s talk that Klein and his team of investment bankers and Internet analysts want to bring their own Manhattan-based firm public in a deal expected to capture the attention of Wall Street and individual investors alike.
“I think that may happen before you know it,” Klein said. “It’s certainly something we’ve begun to think about in our spare moments.”http://articles.nydailynews.com/1999-02-15/news/18106297_1_spring-street-brewing-wit-capital-charles-schwab

So as you can plainly see, crowd funded Internet IPOs were around long before the Jobs Act or this new crowdfunding industry.

Many large corporations offer DRIP plans after they are established on the market that permit direct stock purchases by consumers. Is it really so bad if consumers do not get in “on the ground floor” of a company? What we are really talking about here is getting in on the first day or first few days the stock is offered. Historically, many companies are overvalued at the time of offering anyway. I don’t see where the “average joe” is getting hurt by this.

Costolo doesn’t seem all that enthused about going public at all. In a recent interview on Marketplace, he stated, “We are in the fortunate position not to have to worry about that right now [going public] — both from a financing perspective and the way the company is growing. So it’s not something we talk about inside the company or at board meetings. I’m sure it will be a subject of future conversation, but it’s not on our radar right now.” http://www.marketplace.org/topics/tech/twitter-ceo-dick-costolo-jack-dorsey-ad-revenue-going-public

After the Facebook debacle earlier this year, I imagine a lot of high-flying tech companies might be reluctant to go public at all. Perhaps Twitter will just remain a privately owned company? They seem to be doing pretty well on their own. Why answer to wall street investors at all?

As I’ve mentioned in your last piece @MSNBC http://goo.gl/wi1My, there seems to be confusion in the wording. Equity crowdfunding is for privately-held companies (with no short-term intention of going public) looking for private investors to buy equity through a web platform. Your letter to Twitter suggests a Crowdfunded DPO. Could you share articles relative to this model? Is this conducted over a web platform? I have searched all over the web and s/n and could not find anything. And who provides online DPOs (if done online) to businesses? Awaiting your reply. Diana

I found this article about Witt on Goggle dating from 1999. According to the article, here is how it worked: “To buy IPO shares through Wit Capital, you must open an account with a minimum of $2,000. Members then receive E-mail alerts about new IPOs and place orders on the company’s Web site. Customers can say how many shares they want to buy and at what price.” But the article suggested that customers were not always getting what they ordered. Witt stated that customers got placed in a queue but because of “high demand and limited availability” they seldom sold more than 100 IPO shares to any one customer. Hmmmm I guess that’s better than nothing, but it seems like a rather modest stake.

Fundamental truth about the financial market … from the master.
“Those with the enterprise lack the money and those with the money lack the enterprise to buy stocks when they are cheap.” ~ Benjamin Graham

IPO Village is a not-for-profit, public service website. Offering equity crowdfunding directly through a participating companies website. Utilizing a crowdfunding model to allow individual investors to participate in Initial Public Offerings. The opportunity to purchase stock at pre-IPO pricing is offered on a first come, first serve basis.